Financing Community Access to Atlantic Fisheries

Jordan NikoloyukMay 2013

Contents1. About this project2. The lobster fishery in Atlantic Canada3. Problem definition4. Identifying problem causes5. Potential solutions6. Our current initiatives

About this projectWork stream that accompanies Valuing our

Fisheries work‘Social Finance for Sustainable Fishing

Communities’ April 2013 workshopNow looking for feedback on

proposed steps forward andsuggestions

Atlantic Canada’s Lobster FisheryBackbone of coastal economiesLimited entry fishery38 LFAsTrap limits and short seasons10,000 licenses$550 million landed / year

Supreme Court Saulnier v. Royal Bank of Canada 2008 ‘Fishing license is property’

Owner-Operator and Fleet Separation Policies

Have protected and maintain the inshore fishery as an economic driverLicense holders must fishProcessors cannot own fishing licenses

Essential policies, but:Limited role for producer coopsNo incorporate financial partnerships

Identifying THE ProblemFishing licenses are leaving communities

Fishermen retireNew entrants don’t buy licensesLicenses get consolidated by corporate

interests Not based in geographic communities Business based on reducing number of harvesters

through capital-intensive production Larger volume operations creates ‘efficiencies’ that

allow more offshore processing, low-value export

Example: Grand MananPopulation of 2,500 with 130

active lobster licenses

Approximately 1.5 hours by ferry

In 2012 temporarily won protection of residency requirements

Currently ~5 licenses at risk

Some current license pricesLFA 31 (Eastern NS) $ 525,000LFA 32 (Eastern NS) $ 540,000LFA 33 (Shelburne) $ 300,000LFA 34 (SW Nova) $ 475,000LFA 36 (Fundy Bay) $ 495,000LFA 36 (Fundy Bay ) $ 450,000

Why is this a problem?1) License costs do not reflect enterprise

revenues2) Upfront cost is prohibitive to individuals3) Corporate interests are willing to pay more

for licenses

Problem Drivers (1/3)1) License costs do not reflect enterprise

revenuesa) Inflated by government ‘buybacks’b) Retirement needs not built into current

business plansc) Uncertainty in fishing

i. Price fluctuationsii. Regulatory environmentiii. Uncertainty about catch rates

Problem Drivers (2/3)2) Upfront cost is prohibitive to individuals

a) No formal way to ‘graduate’ ownership of a license

b) Loans made with personal guarantees

Fisheries Loan Boards offer loans for ~20 years @ 6%

Very low default rate Limited funding available and difficult to

access

Problem Drivers (3/3)3) Corporate interests over-value licenses

a) High premium on supply control and predictability

b) Longer time horizonsc) Management leverage from well-organized

interest groups

What kind of solutions?1. License banks

2. Loan funds

3. Policy changes

4. Distribution system changes

1. License BanksCooperative ownership that pools licences and quota that is

leased back to members at "fair“ rates

OpportunitiesCommunity investment in productive resourceAllows long time horizons and better access to capital

ChallengesDetermining ‘fair’ rates Securing licenses at fair costMatching with owner-operator principlesMost existing examples are annual rotating lease structures

2. Loan FundsFund to facilitate new entrants as patient capital to assist in

finding other funding

OpportunitiesCan offer business planning / mentoring and strengthen

fishing associationsCan support good types of ‘trust agreements’Could be funded through community platforms like CEDIFs

ChallengesMatching with owner-operator principlesFisheries risk factors are enormousWill not address fundamental issue of license cost

3. Policy ChangesTo allow formal graduated license ownership To allow fishing associations to ‘own’ licenses

in license banks

ChallengeAvoiding making the situation worse by diluting owner-operator protections

4. Distribution Model DevelopmentDeveloping a ‘Seafood Hub’ to redirect

products away from commodity marketsPartners:

Small and medium processorsFarmers markets, local retailers and

restaurants‘Regional’ wholesalers

Regional markets provideprice premiums and reduceduncertainty

Next Steps1) Building Financial Model with Common

Good Solutions Financial questions – what should a license

costs? Retirement costs, revenue expectations, financing

options

2) Seeking community partners to design details of a small license bank (~6 licenses) Potential to fund through a Nova Scotia CEDIF

3) Value chain work to improve regional distribution – September 2013 ‘launch’